The Islamic banking sector in Bangladesh has recently been progressing through a complex and dual reality. On one hand, it faces trust deficits and structural limitations; on the other, there are clear signs of recovery, stability, and growth potential. Once considered a symbol of rapid expansion, the sector later came under scrutiny due to weaknesses in governance and institutional shortcomings. However, recent trends suggest that Islamic banking is now moving toward a new equilibrium-where growth exists but remains controlled, and opportunities are present but conditional.
According to recent data, Islamic banks' total deposits stood at Tk. 4.76 trillion in February 2026, reflecting a 9.27% year-on-year growth. During the same period, investments rose to Tk. 5.88 trillion, marking an 11.38% increase. Total assets reached Tk. 9.34 trillion. Although these indicators appear positive at first glance, their underlying message is that this growth is not the result of aggressive expansion; rather, it reflects a combination of trust rebuilding, risk management, and market realignment.
At present, Bangladesh has 10 full-fledged Islamic banks with approximately 1,700 branches. In addition, more than 40 conventional banks operate 43 Islamic banking branches and 976 Islamic banking windows, collectively serving over 40 million customers with Shariah-compliant financial services. In recent years, while the growth of full-fledged Islamic banks has been relatively slower due to governance, compliance, and trust-related challenges, Islamic banking branches and windows within conventional banks have demonstrated remarkable momentum.
A major turning point in the recent history of Islamic banking came during the political and financial instability of 2024. Irregularities, loan scandals, money laundering concerns, and weaknesses in corporate governance in some banks severely damaged the sector's credibility. In banking, trust is a deeply psychological asset-once it is broken, rebuilding it becomes extremely difficult. As a result, many depositors withdrew funds and shifted toward comparatively stable conventional banks, causing liquidity pressure in some Islamic banks and damaging the sector's overall image. However, the sector has gradually been recovering.
This recovery has been driven by three key factors: regulatory intervention, structural reforms, and changes in customer behavior. First, the active role of Bangladesh Bank-through liquidity support, identification of weak banks, appointment of administrators, and merger initiatives-helped prevent systemic collapse. Second, restructuring of governance frameworks and improved transparency began to reveal more accurate financial conditions. Third, following the initial shock, a portion of customers gradually regained confidence in Islamic banking, particularly driven by religious and ethical motivations.
Furthermore, several fundamental factors support the long-term demand for Islamic banking. These include its religious and ethical foundation, where instruments such as Mudaraba, Musharaka, and Murabaha promote a justice-based financial framework. Secondly, the principle of risk-sharing makes it relatively fair and stable during periods of economic uncertainty. Thirdly, strong performance in remittance collection, with nearly 31.65% growth, highlights its competitive advantage. Fourthly, significant progress in financial inclusion through agent banking has expanded access to rural and underserved populations.
However, several structural challenges remain. Weaknesses in foreign trade operations, limitations in Shariah-compliant money markets, governance risks, and technological gaps continue to pose significant concerns for the future.
Islamic banking accounts for approximately one-fourth of the country's total banking sector. While conventional banking still dominates, Islamic banking is gradually establishing itself as a strong alternative system. Notably, the rapid expansion of Islamic banking windows and branches within conventional banks further reflects rising demand.
Technological transformation is another critical dimension. The decline in workforce and increasing digitalization indicate a shift toward automation. However, merely adopting technology is not enough; its effective and innovative application will be the key determinant of future competitiveness.
To ensure sustainable growth, Islamic banking must focus on several strategic priorities: strengthening governance, enhancing risk management, promoting digital innovation, developing human resources, diversifying financial products, and improving international trade capabilities.
In conclusion, the Islamic banking sector of Bangladesh stands at a sensitive yet promising crossroads. While current growth is encouraging, it remains fragile. Rebuilding trust is a long-term process that cannot be achieved through statistics alone; it requires transparency, good governance, and institutional efficiency. With proper reforms and strategic implementation, Islamic banking has the potential to emerge as a strong, equitable, and sustainable pillar of Bangladesh's economy.
The writer is an Islamic Banker and financial sector analyst
